A Chilly Wind Blows: Retailers Are on Edge About Holiday Season

It's not even November, and there already are shivers over the holiday shopping season.

It's not even November, and there already are shivers over the holiday shopping season.

Oil prices zooming toward $100 a barrel, skyrocketing home heating bills and the mortgage crunch are all feeding into consumers' uneasiness, which could deflate their Christmas cheer. The result is likely to be heavy promotions at retail in the weeks ahead, and subsequently lower gross margins, according to panelists at the B. Riley & Co. and WWD 2007 Holiday Preview Conference.

The good news is that consumers are still aspiring to buy luxury goods. And with fashion apparel, dresses are women's number-one choice. Overall, though, shoppers are expected to pull in the purse strings this year.

The uneasiness over holiday, as well as continuing unseasonably warm weather throughout the country, is causing companies to rethink their former optimism. Last week, Coach Inc. said it expected U.S. store traffic to slow over the next few months, while Talbots Inc. cut its earnings forecast on similar fears — lowering its previous earnings per share estimate of 42 to 48 cents for the fall season to a loss of 25 to 35 cents. And on Friday, footwear retailer DSW Inc. revised its quarterly same-store sales forecast downward based on softer sales for the 11-week period ended Oct. 20.

"If there's one term to capture how consumers are thinking today, it would be that they're very prudent," said Liebmann. "When we think about consumers, they've had a huge amount of experience shopping everywhere. They bring with them when they come to buy — whether it's fashion or home goods or beauty products or groceries — a very strong experience of what's a strong value, what's really innovative."

In addition, she said, consumers are operating in a state of something she calls "never normal." It's the idea that consumers are influenced by the fact that they can't predict what tomorrow will bring. This mind-set is the result of economic conditions and is underpinned by attitudes of the post-Sept. 11 world. It makes consumers more cautious, but nevertheless, more willing to spend on things that are new and different, Liebmann said."If we deliver something new and different they seem to be able to dig into their wallets deep enough to find the money," Liebmann said.

But there are other dynamics at work when it comes to the complexities of consumer spending. Payner-Gregor said, "Everyone is looking for value today regardless of whether you have limited disposable income or unlimited disposable income. I think no one wants to feel like they made a foolish purchase."

Meanwhile, the holiday season has become very protracted, said Liebmann. Black Friday is being event-driven, and is more like an entertainment event, she said. With retailers pushing events early in the season and gift cards extending late into the season, there is a long period when retailers can both catch, and lose, shoppers.

"There's lots of opportunity to get consumers, but you can't keep showing them the same thing from the beginning of November to January and February because they're really not going to buy. It requires a whole different way of thinking about the season and what you're showing and what you're merchandising," Liebmann said.

Payner-Gregor said as an online retailer, her company is able to change and respond quickly to consumer trends. "If we see a trend taking off, we'll buy more of that and less of something else. And we can respond all the way through the holiday season," Payner-Gregor said, adding it's a lesson brick-and-mortar retailers can apply and use to expand their businesses.

Richman said one positive for apparel retailers this year is the strength of the dress market. "And we are very focused on the juniors business," she said. "The junior dress business is trending much better than the misses' dress business."

Top sellers this season include sweater dresses. In the broader market, Richman said the major difference in this part of the holiday shopping cycle versus last year is the weather. "If you look at December last year, and I keep bringing up weather because I do think it affects the mind-set of consumers, last year Christmas week was in the 70s," Richman said. "If we get a cold, dry snap — and you need more than a week of cold weather — we could have a decent December."Woolf said there are more concerns and factors affecting sales than the weather. If the merchandise is right, she will shop, he said. And regarding the dress business, Woolf said, "As strong as the dress is, it can never make up the business you will do in sportswear."

Generally, by price point, dresses garner less than sportswear separates.

Woolf said the belt business has been difficult, and accessories are hit or miss — depending on the market. For Caché in particular, he said, "We are a destination business. People don't walk by our store and say 'Oh, I need that $400 long dress.'"

Woolf said to succeed in the current climate, "you have to know your customer." He added that conditions at retail include "mall traffic being down 4 to 7 percent in the last few months."

"In this market, you have to cultivate the best customer base; they aren't going to come to you, you have to go get it," he said.

Woolf describes himself as a "cautious optimist" who plans business on the conservative side. He predicts October will prove to have been a difficult month.

Richman said shoppers need a compelling reason to go into the store, especially given the present retail environment, which includes cluttered retail markets, sameness on the racks and a weak misses' segment. In regard to the lack of strength in the misses' segment, the panelists said offerings are off the mark.

"Consumers are about psychographics, not so much their demographics," said Payner-Gregor. "We have to get away from age, that's not how women think today. Missy women want to be current, look like this season and look different" from last year without feeling like they look foolish, she said.

Gonzalez said shoppers this holiday will be seeking out value and exclusives. "In the high-end market, they don't want to feel that they have what everybody has," she said.

In the broader department store channel, Gonzalez said retailers are pulling the trigger on promotions. "Too many department stores panic early," she explained. "They want to make their numbers look good, so they mark it down too aggressively. Wal-Mart is marking down toys in September. That doesn't make sense. Did they do it for the press coverage or is there something behind it that we're not seeing? At this time of the year, in fashion, we don't have the 'It' product. We don't have the Tickle-Me Elmo, or the i-product. Wants are not being met."When asked what retailers are getting it right, Cole said, "A lot of companies continue to distinguish themselves, all from different perspectives. One that jumps out that I admire from different perspectives is Target. They are great marketers and also upgrade their products. I used to think marketing delivered the product, but now I get to spend some time in their stores [through our Mossimo line], and I believe the product is now catching up. [Target provides a] wonderful experience, getting shoppers buying food and apparel."

Cole said Kohl's "has also done a phenomenal job of integrating brand names and making an exciting environment for the shopper with the way they are handling proprietary brands. I think Wal-Mart is turning themselves around. The new team is doing some interesting moves. I'm excited about [Ocean Pacific's] opportunity with Wal-Mart.

"But it's a jungle out there," Cole added, "In the old days, I think you could be good at price or value, or you could be good at marketing, or operations. Today, you've got to integrate all of these, or you lose. I also agree that it's not just weather."

Cole, whose company manages brands such as Rocawear, Joe Boxer, Badgley Mischka, Bongo and Candie's, said given the competitive environment, his company looks at brands like children. "We wake up every day and think how to nurture them, how to keep them out of rehab and how to keep them from hanging out with bad brands," he said.

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